Take Charge of Your Life!

Your Money: Get Out of Debt

It is one of my dreams to be clear of debt. Unfortunately, I must admit that that dream is a long way from coming true. The realities of life have set us ack.

I’m sure many of you are like us. It has become the American norm to have mountains of debt. While I can’t say I’m proud of it, I know things could be worse. At least we’re able to pay our bills each month. But if you can’t pay your bills, or you’re just really tired of those credit card bills staring you in the face each month, it’s time to do something about it.

Without having much, if any, money at the end of the month, it’s easier said than done. But I found a couple of ways to knock off little chunks of the mountain that don’t fall under the typical “save money” or “make more money” categories:

“Bonus” money:

Did you know that if you get paid weekly, but pay your bills monthly, you actually have enough to pay 13 months’ worth of bills? Think about it: most months you’ll have 4 paychecks for the months’ expenses. But every 3 months you get a “bonus” check, giving you 5 checks for that month. If you continue to limit your expenses to 4 paychecks, that “bonus” check can be used to knock down debt. If you’re looking to pay down your mortgage, some lenders will even let you work out an arrangement to pay every 2 weeks — so you automatically pay 13 months’ worth of mortgage payments each year. That can save you tons of interest and have you owning your home free and clear a lot sooner. If you’re looking to pay off credit card debt or student loans, etc., that money can make a huge dent in your debt, saving you interest and stress.

Along the same lines, when the time comes, you can use your tax refund money to pay down debt. Don’t get a refund at the end of the year? Consider having a little higher amount deducted from your paycheck each week. Not only will it save you the stress of having to scrounge up money to pay when tax time comes; it can also force you to save money. If you have difficulty saving money on your own, this “forced” savings plan may work out well for you.

Refinance:

Our mortgage was locked in at 6.5%. It wasn’t a horrible rate, and compared to many others who purchased their homes years ago, I’m sure it might look pretty decent. But interest rates have plummeted. Unfortunately, so has our home’s value. At the same time, our debt-to-income ratio has gone up, making us less-than-ideal candidates for a credit review. Well, in steps the government. We are far from being the only ones in our pickle, and we were able to call our mortgage company and work out a refinancing that saved us 2.5%. That’s huge! We’re now locked in to a 4% rate, and that has saved us about $250 a month. Guess where that money could go?

Of course there are loads of other ideas out there to help you knock down your debt. In addition to finding ways to save (try Tracking Your Money) and finding ways to bring in additional income (check out Supplemental Income), you can try balance transfers to knock down high interest debt (just keep in mind you’ll need good credit, and you’ll need to be able to pay off the balance by the time the promotional period ends), asking your lenders for a lower rate (be sure to ask for someone who has authority when it comes to interest charge rate changes), and debt consolidation (research for a reputable organization and watch out for scams).

Above all, try not to get discouraged. It can be very stressful to be in over your head, but taking a deep breath and working out a plan can be the best course of action for digging yourself out.